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Growth without scale effects due to entropy

Listed author(s):
  • Tiago Neves Sequeira

    ()

    (Departamento de Gesta˜o e Economia and CEFAGE-UBI. Universidade da Beira Interior.)

  • Pedro Mazeda Gil

    ()

    (University of Porto, Faculty of Economics, and CEF.UP)

  • Oscar Afonso

    ()

    (University of Porto, Faculty of Economics)

We eliminate scale effects in the Balanced Growth Path of an expanding-variety endogenous growth model using the concept of entropy as a complexity effect. This allows us to gradually diminish scale effects as the economy develops along the transitional dynamics, which conciliates evidence of the existence of scale effects long ago in history with evidence for no scale effects in today’s economies. We show that empirical evidence supports entropy as a stylized form of the complexity effect. Then we show that the model can replicate well the take-off after the industrial revolution. Finally, we show that a model with both network effects (as spillovers in R&D) and entropy (as complexity effects) can replicate the main facts of the very long-run evolution of the economy since A.D. 1. Future scenarios may help to explain (part of) the growth crises affecting the current generation.

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File URL: http://www.fep.up.pt/investigacao/workingpapers/wp575.pdf
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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 575.

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Length: 28 pages
Date of creation: Apr 2016
Handle: RePEc:por:fepwps:575
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  1. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
  2. Scott L. Baier & Gerald P. Dwyer & Robert Tamura, 2006. "How Important are Capital and Total Factor Productivity for Economic Growth?," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 23-49, January.
  3. Alvarez-Pelaez, Maria J. & Groth, Christian, 2005. "Too little or too much R&D?," European Economic Review, Elsevier, vol. 49(2), pages 437-456, February.
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  8. Ang, James B. & Madsen, Jakob B., 2015. "What Drives Ideas Production Across The World?," Macroeconomic Dynamics, Cambridge University Press, vol. 19(01), pages 79-115, January.
  9. Gregory Clark, 2009. "The Macroeconomic Aggregates for England, 1209-2008," Working Papers 919, University of California, Davis, Department of Economics.
  10. Miguel-Angel Martín & Agustín Herranz, 2004. "Human capital and economic growth in Spanish regions," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 10(4), pages 257-264, November.
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